Backfilling Pinnacle Airlines office space a tall order

When Pinnacle Airlines Corp. moves its headquarters from Memphis to Minneapolis-St. Paul International Airport this May, the regional airline will be leaving behind one of the largest contiguous office spaces in the Mid-South.

Backfilling Pinnacle’s 170,000-square-foot space at One Commerce Square will be a team effort involving the Greater Memphis Chamber, the Downtown Memphis Commission and Cushman & Wakefield Commercial Advisors Asset Services, the property’s asset and leasing company. The building is currently 77 percent occupied, a number which will fall to 38 percent when Pinnacle vacates.

The leasing team is looking at all options to backfill the space.

“It’d be great to get one strong tenant to occupy all that space, but if we can do it 15,000 or 20,000 feet at a time, that’d be great,” Bentley Pembroke, vice president at Cushman & Wakefield Commercial Advisors Asset Services, said. “There is some really attractive upper tower space for multi-tenant users, but more than likely we’ll be backfilling the lower tower space with larger floor plates, hopefully new headquarters users.”

At 408,165 square feet, the One Commerce Square office tower is the third biggest office property Downtown. Located at 40 S. Main St., it has 14,500-square-foot floor plates. Pinnacle currently occupies floors two through 14 of the 29-story tower.

Despite losing Pinnacle, One Commerce Square has several things going for it.

Lynch and Schledwitz have a history of buying properties at a low price and turning them around, while Hyde, the founder of AutoZone Inc. (NYSE: AZO), has deep Downtown roots.

“Going forward, we’re lucky to have the group to work with we have, that is committed to Downtown and the city of Memphis,” Pembroke said. “I think that’s a big differentiator with some other buildings in town.”

It also helps that Memphis Commerce Square Partners got the building at a good price. The previous owner, US Bancorp, acquired the property through an FDIC transaction in 2009 and initially listed it for $12 million. A building’s purchase price is one of the main drivers of its rental rate.

Also, building improvements will help the backfill process. The local ownership group spent more than $20 million renovating the property, with Looney Ricks Kiss designing the renovations and Grinder Taber & Grinder Inc. serving as the general contractor. The building’s owners are currently pursuing a Leadership in Energy and Environmental Design designation from the U.S. Green Building Council.

When Pinnacle moves out, what will be left behind is updated commercial space already built out for future Class A office users.

“That’s unique to the whole city, especially in an environment like the Central Business District,” Conrad said.

In 2012, One Commerce Square had a 90 percent retention rate totaling 33,615 square feet. It also saw the return of a banking operation to the lobby, with Independent Bank leasing space and putting its illuminated logo on the top east and west sides of the building.